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spk00: Greetings and welcome to the Canoe Third Quarter 2023 Earnings Call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Kunal Bala, Senior Vice President, Capital Markets, corporate development, and purchasing. Thank you, please go ahead.
spk05: Thank you everyone for joining us on our Q3 2023 earnings call. We're excited to be presenting this call from our Oklahoma City facility. During the call, Tony will update you on our business progress. Greg Etheridge, who joined as our CFO in August, having previously served on our board, will provide an introduction and update on sales and financing And finally, Ramesh will go over the Q3 financial results. Please be advised we may make forward-looking statements based on current expectations. These are subject to significant risks and uncertainties, and our actual results may differ materially. For a discussion of factors that could affect our future financial results and business, please refer to the disclosure in today's earnings release and our most recent Form 10Q and 10K, and other reports that we may file with the SEC, including Form 8Ks. All of our statements are made as of today and are based on information currently available to us. Except as required by law, we assume no obligation to update any such statements. During this call, we'll discuss non-GAAP financial measures, You can find the reconciliation of these non-GAAP financial measures to GAAP financial measures in today's earnings release, which can be found on the IR section of our website. Over to you, Tony.
spk04: Thanks, Tanal, and welcome, everyone. We live in the most interesting times with an imperative for global innovation, but with macro and micro headwinds compounded by financial crosswinds. especially in certain industries and markets like ours. When our country has fallen behind, while this is daunting at times, this can feel like forever, but it can and will pass based on your creativity, your resolve, and determination to find a way to get your vision and mission to market and then to scale. What is inspiring to me is that it takes just a small group of innovators and hardworking believers who accept nothing other than to find a way to win. What is also inspiring to me, as our country has always done its most impactful work when the world has decided to give us number two or number three or even last place at times, to only see us emerge back in the game and many times on top. To be amongst these great innovators, you must find your own inner resolve to lead and not to follow others, but rather hold the bar so high that at times you even doubt yourself. Because as we have all seen, many people vote against the innovators versus support them. I am blessed and honored to have a group of like-minded people who volunteer every day, do their part and more so that we can accomplish our mission. While times are tough, we are grateful that every day more and more of you are becoming believers in our strategy that we introduced two-plus years ago when we took over the direction and leadership of Canoe. Our vision was bold, not the easiest to understand, and was hyper-focused on different and, as we now know, emerging markets that require unique products, sub-products, and approaches to first meet the needs of our customers in fleet, government, and military, and then onto consumer markets. Some have asked me why. not focus on consumers first. It's simple. If you design your products and service for the most discerning commercial customers who aim to test the bounds of the possible, they will help you find a way to build it into reality through rigorous testing and value-based feedback because their business and mission have a critical dependence on our platform, to perform in volume and under stress. Not only are our fleet customers contracted multi-year volume buyers with bankable credit profiles and are those who demand minimalism with maximum functionality and safety, these partners can help you fast forward generations of continuous improvement, which will ultimately benefit our consumer customers when we increase and expand our delivery to these additional markets. The risk of manufacturing before rigorous testing has been borne out by the best. You run the risk of costly recalls. Because of this, we have never just tested our products to pass a regulatory standard, but rather to live or die by the value validation of our hardworking people of our country and our customers who rely on our product for critical processes. The big bets we have made around the redesign and functionality of our platform are beginning to play out successfully at multiple levels, but we still have things to prove. We have worked nearly three years to get to this point. We have de-risked the business plan, de-risked the technology, and settled legacy matters. And we'll continue blocking and tackling with our characteristic of scrappiness, perseverance, and tenacity. And the discipline and experience we will gain at a time like this is great for Canoe's future DNA. Look, as I mentioned, There have been substantial headwinds for canoe and the whole EV market over the last 12 months. Headwinds will slow down any aircraft, but if engineered properly and if determined, it will complete its mission. Now let me update you on our manufacturing progress in the quarter. We are proud to be a creative and adaptive team. and continue to find innovative ways to acquire long lead, time, capital intensive, and environmentally sensitive items. With the market in distress, the team has opportunistically and accretively added manufacturing assets at reduced prices. We are continuing to grow our presence in Oklahoma, and by the end of Q4 23, target 20 to 25% of our total workforce will be Oklahomans. In our workforce development program with the Cherokee Nation, we began hiring and training employees at our Oklahoma facilities. Yesterday, we reached a key milestone and announced that we would be delivering our first batch of made in Oklahoma electric vehicles to the state of Oklahoma. Office of Management and Enterprise Services, under an agreement to sell up to 1,000 vehicles. Our manufacturing milestones achieved this quarter are, on July 27, we hit a 20,000-unit run rate for our battery modular line installed in Prior, Oklahoma in the Cherokee Nation. July 31, 20,000-unit run rate for our robotics and assembly line for our ladder frame equipment installed at Oklahoma City. August 17, EPA permit granted for our OKC facility. November 10, commissioning of equipment completed on both the ladder frame system in Oklahoma City and the battery module system in Pryor. November 14, today we update the general assembly system is on track to achieve the 20,000 unit run rate for Q1 2024. Listen, we believe it's essential for us to be disciplined when stepping our way into volume manufacturing with the right pace of investment and with our supply chain partners. Now I'd like to have Greg cover sales and capital markets activities, and then after that, it would go to Ramesh.
spk02: Thank you, Tony. Just a quick intro. I've had the privilege of serving on the Canoe Board of Directors since December 2020, until recently when Tony asked me to join the management team full-time and put my skills to use for this next phase of growth. Prior to that, I spent 14 years investing and managing direct private and public control investments. often serving as an interim financial management role. And prior to that, I spent 10 years in investment banking, working in capital markets and restructuring. From my first days of meeting Canoe in mid-2020 and understanding the unique benefits of the modular platform and the technology stack, I had a strong belief in the substantial business opportunity for the company. My conviction about the company's success became stronger after getting to know Tony and the team here and witnessing the business model pivot that he directed in early 2022. For those of you that don't remember, the pivot was the change from a consumer-facing electric vehicle to the fleet-focused electric delivery vehicles that have now generated $750 million in committed orders or 18,000 units for key commercial customers and also large additional opportunities with government customers. This business model shift turned out to be prescient given the difficulties of consumer exposure in a high interest rate environment. Tannou's focus towards well-funded, high credit quality commercial, government, and military customers appears to be well-timed. Now shifting to our revenue and sales pipeline and recent milestones. During the third quarter, we entered the revenue generating phase for the company. Sales during the quarter were generated from vehicle deliveries, but also from revenue from the DOD's Defense Innovation Unit contract and services. As you know, Our multi-purpose platform, or MPP, and many of the underlying technologies, electric drive unit, battery modules, and the system itself, offer revenue-generating potential for more than just complete vehicle sales. We will continue delivering additional vehicles throughout the balance of the year to our highly discerning, high-grade credit, government, and commercial fleet customers, the type of customers you want, especially during tough market cycles. On July 12th, Canoe delivered the Crew Transportation Vehicles, or CTV, a derivative of the Lifestyle Vehicle models to NASA. These specially configured CTVs will transport astronauts to the launch pad at Florida's Kennedy Space Center for future Artemis missions. It was a historic day for our company and a very proud day for our team. On October 20th, Canoe was pleased to attend when NASA officially revealed the CTVs at the Formula One Grand Prix in Austin, Texas. On November 10th, we revealed the American Bulldog, a derivative of the Screaming Eagle that was delivered to the U.S. Army and been in constant testing since November of 2022. The Bulldog was developed as a further derivative and byproduct of this extensive testing. And again, as Tony mentioned, we announced yesterday, November 13th, that we are delivering our first vehicles in an up to 1,000 unit agreement to the Oklahoma Office of Management and Enterprise Services. We are very proud of our partnership with the state of Oklahoma and its workforce. Our sales pipeline continues to build through 2025 with continuing
spk04: Sorry, we had a little technical glitch here.
spk02: Continuing order book growth and pricing stability across our target segments. The team recently concluded pre-launch trials with key customers on our LDB130, LDB190, and other derivative products. Three billion plus order book across both stage two and three orders. Over 67,000 total reservation count. Three percent sequential growth in the quarter on stage two and three orders. Strong product acceptance on the commercial fleet side allows us to be more discerning on customer choice and modulate order acceptance given our very strong backlog. Through pilot and pre-delivery customer testing, we found 97 to 100 percent of the use cases are satisfied when looking at the last two years of driving evaluations and deliveries with key fleet customers. Six unique duty cycles, including high volume, high traffic metros, rural areas across both food deliveries and general merchandise. 150 plus days of reliable performance in extreme high temperature conditions in multiple weather environments. and over 10,000 industrial and commercial use miles and many thousand deliveries made to unique locations. As we move into production, we also expect to start receiving deposits from our commercial fleet customers. At Canoe, as Tony described, we have been hyper-focused on delivering units to our customers and optimizing across our business. We have a strong track record of raising small amounts of capital and allocating it to different functional areas and using milestone-based achievements. During the quarter, we raised $78 million in equity-linked securities, and in October, we raised another $45 million. Year-to-date, we have successfully raised approximately $250 million in total capital to support the growth of Canoe. The most recent $45 million convertible preferred investment that closed in October was from a foreign strategic partner that has ability to significantly upside its investment as we continue to achieve our milestones. This long-term investor is interested in a manufacturing partnership with Canoe and can support Canoe at very attractive price points for certain parts of the vehicle. We continue to be focused on a variety of other capital alternatives, including with additional overseas partners. Our primary focus this quarter and going forward will be to efficiently allocate capital and continue to achieve our business plan. We are generating savings that can be redeployed in the business at many levels. We continue to be focused on getting maximum efficiency from our capital, and that is my mission. We will take advantage of market dislocations as the opportunities arrive, and Ramesh will describe those in more detail. In summary, despite a very challenging market backdrop this year, we have successfully raised capital to achieve our objectives and will continue to do so. Our team is scrappy, innovative, and persevere. We will continue to optimize our spend and take advantage of the opportunities in front of us to achieve our business plan objectives. I will now hand it over to Ramesh to review the financial results.
spk08: Thank you, Greg. Now let me walk you through the results of Q3 2023. It was an exciting and historic quarter for two reasons. First, we are now a revenue generating company. As Tony mentioned earlier, our first revenues were generated in July when we delivered our first three NASA vehicles on time, followed by revenues generated from the completion of certain engineering milestones. and delivery of certain battery modules to the Department of Defense's Defense Innovation Unit. We generated revenues of approximately $519,000 in Q3 of 2023. Our revenues in the third quarter reflect the inflection point we are at, beginning the phased ramp manufacturing approach in delivering low-volume vehicles starting Q4 of 2023. We expect to ramp volumes over the rest of 2023 and 2024 at a measured pace to match with the delivery schedules that are being agreed to with our customers. We incurred $903,000 in cost of revenues during the three months ended September 30, 2023. Our cost of revenues primarily includes vehicle components and parts, labor costs, and amortized tooling and capitalized costs involved in producing and assembly of our parts and components. A negative gross margin of $384,000 during the three months ended September 30, 2023 was primarily due to the custom-built initial vehicle deliveries to NASA and certain increased logistics and freight costs. and includes a lower of cost of net realizable value or LCNRV adjustment of approximately $366,000. We expect negative gross margin to improve on a per vehicle basis as we increase overall production levels and achieve commercial cost savings on material and labor costs. Second, a continuous optimization of operating expenses and narrowed focus on our milestones has resulted in the lowest adjusted negative EBITDA since we have been as a public company. Moving to the income statement. Our third quarter 2023 results are as follows. Research and development expenses total 22 million for the quarter compared to 57.1 million in the prior year period. A 61% reduction from Q3 of 2022. SG&A expense was 24.9 million for the quarter, compared to 48.8 million in the prior year period, a 49% reduction from Q3 of 2022. GAAP net loss was 112 million for the quarter, compared to GAAP net loss of 117.7 million in the prior year period. Adjusted EBITDA was negative 40.4 million for the quarter, compared to negative 80.8 million in the prior year period. Adjusted EPS was negative 0.07 per share for the quarter, compared to adjusted EPS of negative 0.31 per share in the prior year period. Turning to cash flow. We ended the quarter with 8.3 million of cash and cash equivalents. After giving effect to the issuance, sale and delivery of preferred shares and warrants. For a total of $45 million, our cash balance would have been 53.3 million. Cash used in operations for the nine months ended September 30th, 2023 was 191.4 million compared to 329.9 million in the prior year period. Our capital expenditures of 45.4 million for the nine months ended September 30th, 2023 compared to 88.8 million for the nine months ended September 30th, 2022. Net cash provided by financing activities for the nine months ended September 30th, 2023 was 208.9 million compared to net cash provided by financing activities for the nine months ended September 30th, 2022 of 181.3 million. Our monthly cash flows in Q3 of 2023 was approximately 40% lower than our average cash flow per month in 2022. We continue to optimize cash as we move into Q4 of 2023. Moving to our guidance. We had previously provided our guidance for the second half of the year as follows. Adjusted EBITDA of negative 120 million to negative 140 million and CAPEX of $70 million to $100 million. Our relentless focus and discipline of expense management, including the labor arbitrage as a result of change in labor mix from engineering to manufacturing, and transition of our workforce to Oklahoma, and our deliberate strategy to minimize long-term purchase commitments, amongst other factors, allow us to improve our negative adjusted EBITDA guidance. This improvement has resulted in our revised negative adjusted EBITDA guidance to now be between $85 million to $105 million for the second half of 2023, which is a 30% improvement from the guidance we have shared in the prior quarter. From a CapEx perspective, our phased ramp manufacturing approach allows us to fully utilize our low volume tools prior to switching over to the high volume tools, and pace our asset expansion to align with production, thereby avoiding higher amortization over initial units produced. These reasons, combined with the other reasons Greg mentioned above, as it relates to partnering with others in the industry to acquire minimally used equipment at optimized cost, allows us to reduce our guidance, thereby We share the following revised guidance for the second half of 2023, of CAPEX being $30 million to $40 million. Our 2023 second half adjusted EBITDA guidance of negative 85 million to negative 105 million will bring our full-year adjusted EBITDA guidance to negative 210 million to negative 235 million, which is approximately a 50% reduction from the prior year. Now, let me turn it back to Tony for final remarks.
spk04: Before we go to Q&A, I want to take this time to thank all of our supporters and especially the community and our partner suppliers for their incredible flexibility and support while we navigate our way through to the next phase. Operator, please take it to questions.
spk00: Thank you. And ladies and gentlemen, at this time we will conduct our question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate that your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Our first question comes from Steven Ganjaro with Stifel. Please state your question.
spk03: Thanks. Good afternoon, everybody. I think two things for me. The first, and this ties into your CapEx guidance, and on the second quarter call, you kind of reduced your CapEx needs to get to that 20,000 unit annual run rate. I'm just curious on the progress as far as the efficiency of getting to that 20,000 unit run rate, and does the reduced CapEx that you announced today change the timeframe on that?
spk04: No, actually. We've actually enhanced our processes such that we're taking advantage of the opportunity to buy some of the equipment from the unfortunate situation for others. In addition to that, we've developed manual processes so that we actually can scale above and beyond, because you do have some bumps and alignments that you have to do as you bring the line to full automation. We feel the best we've ever felt, and if by chance you happen to be in the Oklahoma City area, we'd be happy to give you a tour.
spk03: Thanks. I will definitely take you up on that. The other thing for me was when we think about, and I know you probably don't want to give me precise numbers, but we think about sort of the move toward gross margin positive. Can you give us sort of your updated thoughts on, you know, roughly the number of units you think you need to get there?
spk04: Yeah, we start to really come to the profitability, you know, to kind of break even around 14,000 to 16,000 units, depending on the manual processes and the automation we've implemented. We've democratized the scaling of the manufacturing environment so we can scale it with orders so we don't have to front-load the capex. That's what we've fine-tuned. And we've developed repair and assembly methods through AI and others so we can train the workforce Of course, we have great incentive programs for the workforce between the Cherokee Nation and the state of Oklahoma. We feel good about the 14,000 units. There's more that we'll unveil as to why we concentrated on the 14,000 to 20,000 unit range, but we'll do that at a later date.
spk03: Great. Thanks for the info. I'll get back in line here.
spk00: Thank you. Our next question comes from HC Wainwright. Amit Dayal with HC Wainwright. Sam, please state your question.
spk07: Thank you, Graf and everyone. Tony, just, you know, just honing in on the delivery schedule for 2024, can you give us a sense of, you know, how this will ramp, you know, from a number of units perspective? Is it in the, you know, 10s to 20s in, say, January, February, and then ramping into the 50s and 100s, you know, later in the year? Any sort of direction or something?
spk04: Yeah, so it's good to hear your voice. So first of all, everybody has produced the hockey stick logic system and the way they're going to do manufacturing, which in reality, that's happened like 2% of the time, if you study just about anybody. And what you'll see is us stepping and that's why we developed the dual method path while we're bringing on CapEx so we're not front loading, is we have manual methods as well as semi-manual methods as well as full automated. The high-tech areas of the MPP-1 are fully automated now, and it takes less than 22 people to run that entire line, which can scale to 50,000 units a year. and that capacity is locked, and that process is refined, and we've developed the training AI loops. But what you'll see as we do announce it in the coming quarter, you'll one see we're delivering vehicles, and that is scaling, but it will not be a hockey stick event throughout the year because it is imperative that when we exit 24, that we're exiting it leaning towards, if you just look at our quarter book, or it's a 40,000 unit run rate. And I extend to you the same invitation to come visit us, and I'll walk you through how we've done it. You've been to many factories. I think you'll find it pretty interesting what we've done and how we've democratized some of these things that generally have been heavy CapEx loads.
spk07: Thank you, Tommy. I'll quickly take you up on that. So when we are now thinking about, you know, the delivery schedule for these customers, you know, were there certain expectations, you know, say from the likes of Walmart, et cetera, of how many units they might have received, say, in 2024 and how that has changed? Are they still working with you in terms of managing, you know, expectations around units to be delivered to them?
spk04: Yeah, first of all, when you have the privilege of working with a company like Walmart and its leadership team, they understand logistics and scaling better, I believe, better than anyone, especially in a very demanding manner in which it's customer delivery on location as well as bring it to me. So they've been super awesome about how we've worked through this What we've done with our customers is we've talked to them about a level of accuracy of delivery in years one, a different level in year two, and a different level in year three because all our customers are multi-year orders. We have a minimum that we have 80% to 98% confidence at and a higher end that we can reach If we decide to choose to accelerate some of the CapEx needs, of course, that gives us an opportunity for the customers to participate in giving us advances in order to do that. We're finally hitting that stage. Again, rather than try to talk everybody through it, for those that it's appropriate for, we'd be willing to give you a tour because now you can really see it.
spk07: Thank you, Tony. There's one last one from me. In terms of the strategic investor you mentioned earlier on the call, any color on who this entity is and if they are looking to potentially partner with you on the manufacturing side, is that for outside of the U.S.?
spk04: It's a very strong American ally, and it's people I've done business with before. and there's a lot of trust. They have an incredible amount of capabilities, but they have large funds for the workforce development, which could give us even more competitive advantage. Most of all, they have invested an incredible amount of money in rapid development methods of 3D printing of highly sophisticated parts for various other use cases, but at this time, For many reasons, based on the work we're doing, that name is being kept confidential.
spk07: All right. Thank you, Jose. That's all I have. Thank you.
spk00: Our next question comes from Jamie Perez with RF Lafferty. Please state your question.
spk06: Hey, good day, everybody. Hope everybody's doing well. Congratulations on your start of manufacturing. Now, are you going to be producing LDVs? And also, I know you mentioned your new vehicle, the Pit Bull, the Pit Dog, sorry. Are you going to be producing that? Because it's still on the website. Are you going to take reservations for it? Could you give them a little bit of color on the trajectory of that?
spk04: Yeah, so one, being a Georgia boy, you definitely have the right to come here and drive the heck out of it. All right, cool. And see what we put behind it. But yeah, so it's the same MPP1 platform. You'll see when you come out and see the tour, you'll see how we built the MPP1, the ladder frames, and how their durability compares to others. It's designed for military and industrial use before consumer use. Everything down to the welds, to the coatings. We don't use e-coat. We use a much more advanced process that gives you much longer life. So we'll be able to produce, because the MPP-1 is just top hat. And if you look at the top hat, the front of our vehicle is reusable. So we're reusing between 65 and 80... 80% of the parts in. So we can build 130s, 190s, LVs, Luxes. We'll be building various units on the same line because it's a multi-line capable system. So that's one of the reasons why we're debugging it the way we are, is because one, we may build a Bulldog. The next one, it may be a 190. Since we have large volume customers, we're able to do adequate runs on the vehicle. But to answer your question, in 2024, which will optimize our cash flow from the highest grade credit customers, we'll be concentrating on the LDBs with limited LBs to high volume customers.
spk06: My next question, are you still getting any issues with supplies? I mean, I know the labor strike, the UAW labor strike, some of the supplies that is a little bit of a backlog. Are you seeing that or you anticipate that?
spk04: Yeah, I think our problems are probably a little different, Jamie, in the sense that a lot of our problems are kind of legacy negotiations where they were promising you know, much more accelerated, you know, the typical 100, 150,000 unit orders for pricing. We've actually taken, as Ramesh said, a very different approach and work into partnership with these people because we effectively are running on negative days on deliveries because we don't build anything unless it's pre-sold and it has a good credit rating. So we're able to kind of recut those deals. And that's why I gave a special shout out, because I mean, I think not only are the supplier partners happy to find somebody who's not trying to ring them out for the next $0.10, but to actually get rewarded as we do volume. So our pricing continues to get better, but that we address our BOM costs at a much more moderate level. and at a more hybrid of automation and manual versus all fully automated. So as those lines come up, our margins improve dramatically.
spk06: All right.
spk00: Thanks.
spk06: That's all the questions I have. Thanks.
spk00: Thanks. And just a reminder to ask a question, press star 1 on your phone. Press star 2 to remove your question from the queue. Our next question comes from Beau Fratt with Alliance Global Partners. Please state your question.
spk01: Good afternoon. Good afternoon, Tony. Good afternoon, Greg. Can you just talk about your capital raising going forward? It looks like there won't be any more convert debt issued just because the options expired. you know, can you just confirm that? And then, you know, will that be part of your, it won't be part of your funding mix going forward. And then will you talk about the timing on the next 105 million potential convertible preferred that, you know, with the same strategic investor?
spk04: Yeah, so that'll come from some different sources. So we started generating revenue. I mean, we're real, right? And they're very, discerning customers that provided that revenue, and that revenue will grow quarter over quarter. We needed to prove. These are interesting times, as I talked about earlier. We needed to prove that. Our funding mix now will start to come also from deposits as well as extended terms, and that's why, again, I'll come back to our supplier partners. what they have been willing to do with us. And I think the strike enhanced the opportunity for them to take a breather and appreciate helping young companies that have tremendous order books. That de-risks for them. And from a capital perspective, we'll continue to do, whether it's money from me or others, we'll fund the company in a just-in-time and milestone-based progress. Because I mean, look at it. We're trading below book value right now. So the pendulum always swings, as we all know, extremely. And we just want to prove ourselves. And we're long-term investors. Those things will come around. So we're feeling good about, as we step through 24, based on the visibility of the macro environment we see. And we see lots of room for us to improve on everything we're giving guidance to today.
spk01: Can you just clarify on the last call, you were talking about the potential for non-dilutive capital and that term sheets were coming in that might look attractive. When should we expect some, you know, less dilutive financing to occur? Meaning, you know, are there still term fees out there with a certain amount of capital that you can tap into? Or just help me understand sort of the other levers that you can pull.
spk04: Yeah. So I gave you a glimpse into the fact that we're now in an allocation phase, and allocation also is connected to deposits, right? And these are sizable in nature approach with our customers. In addition to that, we believe the market is starting to realize our strategy that we announced a long time ago, as I mentioned, and that'll That'll obviously help. I always tell the team, in terrible markets that are trading below par, it's not just about price of your shares. It's about the volume and liquidity of it. We have great liquidity, and we have a strong base that is growing more towards the long-term side. We see access to that capital. In addition to that, there are other sources. of capital that we are working with that are much lower cost of capital for the various programs that are associated to. As you win more and more of the big contracts, you get advanced payments associated to those contracts. In addition to that, there's the ability to put in long-term capital pipes that aren't interested in selling. Other capital areas, we have incentives now starting to flow. We'll get our first set of incentives in the first of the year. And we've got great POs from grade A credit and triple B credit. Our spread, very bankable to get advances on. However, we want to focus on this phase before we pay cost of capital. that we use the strength of the balance sheet of our customers and get them units so they can make money with our units. That's a whole array of ways we would get the capital, but I think when the market is trading like this, you have to raise small amounts in frequency, and it also creates a behavior inside the company where they become less wasteful. In the young companies, it's not a question of how much capital you have on the balance sheet. The big question I ask as an investor is, what is the efficiency of the dollar invested on the balance sheet? And I can tell you, I've been doing it a long time. In the early phases, as we're all now seeing, big amounts on the balance sheet often are connected to big burn rates.
spk01: Great. And can you just So if you do the math, it looks like, you know, fourth quarter CapEx is coming in between 30 and 40 million, you know, or I'm sorry, you know, 18 and, you know, roughly 18 and 28 million for the rest of the year. Can you take a stab at, well, one, I think you've been asked if that's enough to get you to the 20,000 unit production capacity. is that and then secondly how much more capital is going to be required to get you to the 20 you know the 40 000 unit production capacity that you that it sounds like you're targeting for the end of 2024. yeah so from a from a capital perspective you know we'll invest about another 200 million
spk04: That does not take effect for some of the 30 cents and less on the dollar of some of the stuff we're buying that some front-loaded CapEx before they had customers. We're in a good phase. Plus, we really coordinated. Again, happy to have a visit and show you the creativity of the way we're using different painting techniques. I come out of a background of that. I sold a company to PPG years back. We understand that market. We don't use ECO. So our ability to exit at 40,000 unit run rate, which obviously we could accelerate if we put more capital. At this point in time, we don't see a need for that because we've been able to work with our customers because we want to really perfect the process through automation, so obviously our margins go up, and we use the least amount of capital. We see 2024, by the fact that we democratize the way the assembly line goes together, we'll be able to capitalize on a lot of those opportunities. Some of it's luck, some of it's timing, and if you think back to the very beginning when the pivot occurred, it occurred for a very specific reason. You've got to build your business for a down market. Because they're not always up. And that's something we concentrated on. I don't think you'll find anyone that has been able to democratize it to make money in the 14,000, 16,000 unit range. And like I said, in a couple of quarters, we'll explain to you why we did that.
spk01: Great. Thanks for your time.
spk04: Thanks for your question.
spk00: Our next question comes from Steven Gengaro with CIFL. Please state your question.
spk03: Thanks. Just a quick follow-up. When you look at the change in EBITDA guidance for the year and sort of the improvement, what are the biggest factors that are driving the delta between where you were and where you are now?
spk04: So it's been, you know, our team has renegotiated a lot of deals with our suppliers. They've been huge contributors. In addition to that, we've seen reduction in our CapEx. We've also been able to utilize better labor arbitrage between California, if you will, and Oklahoma. For all those that have businesses, I strongly encourage them to look at the state of Oklahoma. It's an amazing workforce, and it's got a lot of upside in it. Cost of living is great. So we're picking it up from, you know, like think of it like when you're wringing out a towel, you know, the water all funnels down to the center, but it's coming from all places.
spk03: Okay, great. Now that was all from me. Thank you.
spk00: Thank you, and there are no further questions at this time. I'll hand the floor back to management for closing remarks.
spk04: Again, we'd like to thank everybody. A big shout out to our believers and investors, those that have supported us with instruments, those that continue to work with us on our equipment needs, the shocking system of introducing a democratized assembly line build out. And a big shout out to some of our partners that helped us bring material that is much more ecological to the industry for the first time. And for those of you that come and visit us, you'll see what that is. Thank you.
spk00: Thank you. And that concludes today's call. All parties may disconnect. Have a good evening.
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